AI Bubble: Déjà Vu or Just Noise?

AI bubble fears are back, swirling around the market like a bad penny. Chip stocks are diving, and with major IPOs from SpaceX, Anthropic, and OpenAI on the horizon, the tension's palpable. The bubble has become the topic du jour, but how does today stack up against the infamous peaks of 2000 and 2021?

Goldman's Take

Goldman Sachs recently ran the numbers, comparing today's market with past bubbles on nine different metrics. The verdict? While we're optimistic, it's nothing like the fever pitch of previous peaks. The current median historic percentile rank is at 86%, compared to 95% in 2021 and a full 100% in 2000. But let's be honest, numbers can be deceiving.

Stock market momentum is one area to watch. Goldman reports a 27% rise in its three-month momentum indicator. Sounds bullish, right? Yet, history warns us this could end poorly. High momentum near market highs hasn't been a good omen for S&P 500 returns in the past. Unwinding anyone?

The Breadth Problem

Market breadth, or the percentage of stocks joining the rally, isn't setting any records. It's low, but not as low as it got during the dot-com peak. Taking a closer look at the S&P 500 index distance from its 52-week highs, one can't help but wonder if the distribution phase is creeping up. Investors might be bullish on hopium, but the math tells a different story.

Sentiment and Speculation

Speculative trading, usually a bubble alarm, isn't yet ringing like it did in past. Trading volume in penny and unprofitable stocks hasn't hit 2021 or 2000 levels, leaving room for concern but not panic. Meanwhile, the AAII Investor Sentiment indicator shows a net bearish stance. Surprising, isn't it? In contrast, Yale's confidence index reveals investor eagerness to buy dips despite thinking stocks are overpriced. Talk about cognitive dissonance.

So, what's next? The big IPOs could push us back into bubble territory, or they might just be another chapter market saga. As trillions prepare to hit the market, will investors' plans withstand the looming liquidation hits?

Zoom out. No, further. See it now? Before jumping on the AI bubble train, remember: everyone has a plan until liquidation hits. The data already knows it.